Enerpac Tool Group Corp (EPAC) 2002 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Actuant Corporation fourth quarter earnings release conference call. At this time, all participants are in a listen-only made. Later we will conduct a question-and-answer session and instructions will follow at that time.

This conference call is being recorded.

Certain of the above comments represent forward-looking statements made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Management cautions that these projections are based on current estimates of future performance and are highly dependent on a variety of factors which could cause actual results to differ from these estimates. Actuant's results are also subject to general economic conditions, variation in demand for customers, the impact on the economy of terrorist attacks and threats of war, length of the current recession in the company's market, continued market acceptance of the company's new product introductions, successful integration of business unit acquisitions, operating margin risks due to competitive pricing and operating efficiencies, supply chain risks, material and labor cost increases, foreign currency fluctuations, and interest rate risks. Please see the company's registration statements filed with the Securities and Exchange Commission for further information regarding risk factors.

I would like to introduce your host for today's conference, Mr. Robert Arzbaecher. Please go ahead, sir.

Thank you, Jason (ph), and good morning. We appreciate your participation on this call. We will spend 25 minutes going through prepared comments and open up with questions. Andy will go through fourth quarter financial results and I will come back and give you an update on a few of our key markets, the Kopp (ph) acquisition, and conclude with guidance for 2003.

Now, over to Andy for the numbers.

Thank you, Bob. Summarize the results for the quarter, sales were about $121 million, which was slightly above the $115 million to $120 million guidance we provided on the last call. This compares to sales last year of 116 million, excluding Mox-Med (ph) business which we sold in August of 2001.

We received some help during the quarter from a weaker U.S. dollar relative to the euro, which favorably impacted foreign currency translation.

Sales were up 4%, with 3% coming from currency. EBITDA for the quarter was 22 million, or 18.4% of sales. This was in line with our guidance and compares favorably to last year, when we were $1 million up last year excluding unusual items outlined in the press release. Sequentially, EBITDA and EBITDA margins were down slightly from third quarter, in line with normal seasonal trends.

From an EPS standpoint, diluted EPS before the extraordinary item we reported this quarter was 69 cents. That compares favorably to last year's number of 57 cents, which excludes the gain on sale of Mox-Med (ph), which popped up in the fourth quarter earnings for last year. The 69 cents is a 21% increase over last year's figure and now is our fifth consecutive quarter of improvement. It's also the highest EPS our (ph) quarter we have reported since the spin-off. Our annual - brings our annual diluted EPS to 239 for the year, excluding the one-time charges consisting of the discontinued operations charge, new accounting rule charge and the extraordinary charge.

Digging in a bit on the extraordinary charge during the quarter, we bought back about $10 million of our 13% bonds on the open market. We incurred a $1.3 million net write-off for 11 cents per share, which consisted of a premium we paid to buy back the bonds and a pro rata write-off of debt issuance and initial issuance discount on these bonds.

As a reminder, we will take another charge in the first quarter of 2003, reflecting the final 6.5 million of bonds we bought in first half of September.

Turning back to the quarter. We were satisfied with the results for the quarter. We did beat our sales guidance range for the quarter and posted record EPS from continuing operations. We are happy with cash flow performance of the company as we had a huge debt reduction during the quarter that I will talk about later.

We accomplished these results with a North America economy that was going sideways at best. We did have some positive sales comps from a few of our markets, including convertible top, RV, and European truck. But overall the domestic industrial markets are not doing well. We saw the trend of modest improvement that we discussed on our last quarterly call pretty much stall out in July and August.

We don't appear to be alone in this assessment based on feedback we are getting from other multi-industries, companies in the last few weeks, and more recently, some of the declines in manufacturing indexes. Bob will cover this in his prepared comments as well when we look at fiscal 2003 guidance.

Now I will provide more color on results by segment. First, sales. Tools and supplies sales of continuing units were down 1% during the quarter compared to a 5% year-over-year decline last quarter. Excluding the impact of currency rate changes, sales were down 3% from fourth quarter of last year. In general, we continue to see poor sales results to our OEM customers in the more capital-intensive distribution channels we serve in tools segment.

Enerpac (ph) fourth quarter sales, excluding currency, were down 2% from last year, compared to minus 6% comp last quarter. Gardner Bender (ph) was down 5% year-over-year, same as we saw in the third quarter. In our engineered solutions segment, we had a 12% increase in the quarter compared to last year. Currency was part of that because of the large European sales content. Excluding currency rate changes, sales were up 7%.

RV market sales for quarter were up 10% over last year compare to a 19% improvement last quarter. 10% was more than we expected going into the quarter. Our truck market sales were up 2% excluding currency over last year. This is the first quarter of growth in this market that we have seen in the last two years. Our content for vehicle increased at a few large customers this year. Large customers (ph) had strong summer as well.

On the convertible top front, sales were up 13% for the quarter compared to minus 1% comp last quarter. The biggest single contributor to this was ramp-up of the Audi A-4 (ph) platform, which recently went into production. That was somewhat offset by normal declines in the life cycle of these vehicles and a few others, most notably the Volkswagen Cabrio and the Peugeot (ph) 306.

Operating profit and EBITDA for the quarter from continuing businesses were both up over last year. This year's EBITDA was 22.3 million compared to 21.3 million last year. We had a $1 million increase. Overall EBITDA margin for the quarter was 18.4%, 10 percent basis points over the fourth quarter of last year, but about 50 basis points less than third quarter, which was the high water mark for the year.

Our EBITDA margins in tools and supplies were 20.6% in the fourth quarter and 21.2% for the entire year. This was the best year for margins that we've seen in this segment. Both Enerpac (ph) pack and JB (ph) closely managed cost during the course of the year in response to weaker marketplace demand, and both were able to either expand or maintain their margins in a down sales year, which is quite an accomplishment.

Fourth quarter EBITDA margins in engineered solutions were 16.5%, down 150 basis points from last year and 10 basis points from the third quarter. For the year, margins were 16.1% in the segment compared to 18.3% last year. There's really four primary items we can summarize to the derosion of the margins.

First, we had full year impact at (inaudible) this year versus two quarters last year. If you recall, this business came in with margins in 10% to 15% range versus higher margins in power gear. Secondly, integration and consolidation issues at bringing both Defurdam (ph) and Mishowaka (ph), consolidating them into one plant. We made nice improvements in the third quarter, but not quite as much in the fourth quarter, although it was positive. Bob will address this later in his comments.

Thirdly, we had heavy R&D in engineering costs for convertible top development in the year. We have been waiting more than our fair share of the platforms for the next 3 to 5 years. The downside is it was at expense of margins today with up-front cost of platforms.

Lastly, the poor economy has had noticeable impact in margins in some of the smaller businesses that we don't talk about much - (inaudible) Nielson Sessions. Both businesses have been hit hard by the recession, with sales down 20% or so. Their margins are down significantly due to higher fixed cost structure of these businesses.

For the year, margins, we had a mixed bag. We had good results from GB (ph) and Enerpac (ph), but subpar results from engineered solutions. We don't see a lot of opportunity for meaningful expansion of margins in tools and supplies in the near term. Those are pretty darn good now. There is definitely room for improvement in engineered solutions and particularly in RV.

Our RV team has been and is working on this, but it will not be a quick rebound to historical margins we have enjoyed in the business.

Turning to cash flow, I would like to talk about that and debt reduction. We are happy with the continued strong cash generation of these businesses. Our debt reduction during the quarter was $48 million and we saw debt decline to $192 million. 23 million came from using the APW cash we have been holding since August of last year. We used that to pay down debt in August. I will talk more about that later in my comments.

Outside of that $ 23 million, we also had strong cash flow from working capital management during the quarter. Since the spin-off, each of the businesses has made a lot of improvement in working capital management. All of these efforts have produced a big improvement in working capital metric. Our primary one is primary working capital, that is percentage of trailing 90-day sales, that's receivables, plus inventory, minus payables.

At the time of spin-off, our primary working capital percentage was about 23. We ended the fourth quarter at 18.6% of sales, which is our lowest ever. This is about a 450 basis point improvement. Take that against our $460 million sales base, it means we squeezed out about $20 million of working capital out of the balance sheet in addition to cash earnings over the last two years.

For those banks and bond holders listening today, if you remember, we made two commitments when we were looking for loans from you. The first was to reduce working capital below 20%. The second was to just squeeze out $20 million of working capital. We have delivered on both promises. Our borrowing availability at the end of August essentially was the full revolver, less a couple million dollars of LC (ph). We had $97 million of availability, very good liquidity.

Leverage today is 2.3 times trailing 12-month EBITDA. Borrowing rate as of August was LIBOR plus 2 and a quarter on senior borrowings, down from LIBOR plus 275. Earlier in the year -- and we will be going to LIBOR plus 200 starting in October.

Senior leveraged ratio now is below one time -- .89 times trailing EBITDA. Nice improvement. We are happy with debt reduction in the last two years since spin-off and paid off $250 million of debt and our leverage ratio came down from 4 to 2.3 times, in a poor economic environment.

Last year comments and cash flow, capital expenditures for the year were $10 million. We had 2.5 million in the quarter, consisting of some additional expenditures of (ph) new product lines for convertible top platforms. Our $10 million of cap ex for the year compares favorable to 12.5 million of D&A during the same period.

One final note about cash flow, actually a subsequent event, we close on the Kopp (ph) acquisition in the first week of September and we drew down 11 million of borrowings under our revolver. We also assumed $5 million of Kopp's debt. We will pay an additional $4 million in the fall of 2003 when we require (ph) the remaining 20% of the business.

Last topic I will cover today in my prepared comments is an update on APW bankruptcy. Last quarter we talked about the potential impact of a bankruptcy in Actuant; since then, APW has come out of bankruptcy. The impact to bankruptcy on Actuant is APW shed its obligation to endemnify us in the event of tax audit adjustments arising from spin-off for prior years. About the same time APW came out of bankruptcy, Actuant and APW reached an agreement that allows Actuant to retain and use the $23 million of cash we have been holding since last August. We will have use of this cash until the relevant tax years run the statute of limitations for audit or until the IRS completes the audit; it's just starting.

As a result, we used the $23 million of cash during the quarter to reduce debt. This explains part of the super sized quarter we had in terms of debt reduction. We thought it made sense to pay off debt that's costing us 4% instead of letting the cash sit on the balance sheet and earn 1% interest.

For modeling purposes, keep in mind that we will have to borrow back about $20 million of this under our revolver either to pay APW, the IRS, or a combination of the two at some point in the future. We don't think this will take place in fiscal 2003 -- probably more realistically in 2004 or 2005.

With that, back to Bob.

Thank you. Before going into our guidance for 2003, I wanted to update you on the RV business, Kopp acquisition, and convertible top market.

The RV business unit had unsatisfactory financial results in 2002. While we enjoyed reasonable sales growth due to market recovery in RVs after 9-11, we had significant EBITDA margin deterioration. This is a result of lower margins from Dewald (ph), factory integration issues as we consolidate Power (ph) here and Dewald (ph) together, and lastly, competitive pressures in the marketplace and new competitors showed up on the lower end travel trailer market.

This hit a low point in second quarter, when our EBITDA was 13.5% in RV. It recovered somewhat in the third quarter. It recovered microscopically up from third quarter to fourth quarter. It wasn't what we wanted. We have taken action. We continue to work aggressively to improve the operations. We've reorganized the management team of the now Power Gear organization. Jerry Peiffer (ph) and Actuant have parted ways amicably. Jerry (ph) is available to help with litigation and other issues that might arise.

Bill Blackmore (ph) has assumed day-to-day control and is also adding new resources in the operations and purchasing area down in Mishowaka (ph).

We implemented a lot of our world-class performance initiatives recently and a lot of work cells in Mishowaka (ph). These are starting to present and see some successful results. So all I can say is that, as you can tell by the way I am talking, RV business is getting a lot of attention from us. I am confident we can return to acceptable margins.

Take these RV comments and put them into context. While we're still not achieving the financial returns we want on RV and improvements are taking longer to realize, Actuant is meeting earnings guidance for fourth quarter. And as I will discuss later, we are reaffirming our guidance for 2003.

We still remain enthusiastic about RVs long-term. We are the leaders in actuation systems for Slightout (ph) and Levelin (ph). We have broken into the European market with Hobby (ph), who is the largest manufacturer in Europe and we continue to believe in the demographics of the baby boomers, the people who are turning 50, which are the peak buying age near RV. These people are having a very favorable impact on the RV industry long-term.

Moving to the Kopp (ph) acquisition, which is our German electrical deal that we did 30 days ago, I thought it would be good to give you an update. The major news here is no news. The acquisition is tracking expectations with no surprises.

As many of you know, (inaudible), a long-time Actuant business leader and current board member, is leading our efforts in Germany. We have aggressively begun a world-class performance program at various Kopp (ph) facilities. Using our toolbox approach, we've used lean manufacturing, one-piece flow, kizan (ph) events, 80-20 product rationalization, and global sourcing initiatives. All of these events have been started in really the last 60 days since we have been allowed to get into Kopp (ph).

We put together integration teams for sales, communication, finance, and operations. Early assimilation progress has been very encouraging. We've had a lot of Actuant people traveling to Kopp (ph). And this week we have a fair amount of Kopp (ph) people who are visiting the U.S. facilities of Actuant. We remain very excited about this acquisition and believe there are significant synergies in having a European electrical presence to complement our DIY (ph) business here. We think and believe we can achieve EBITDA and RONA (ph) margin expansion at Kopp (ph) similar to what we experienced at GB through the '90s.

We only ask that Wall Street recognize cost reductions in Germany take a while to realize, such that the margin expansion will come probably more in 2004 than in 2003, at least our fiscal year.

We continue to have -- moving to convertible top, we continue to have great success in our convertible top product line. On the equity road show in February, we listed out a lot of new programs that were going to be awarded over the next two years. What I can tell you now is that we've won three of the programs - the Renomagon (ph), the PT Cruiser, and one other program that customers haven't allowed us to announce yet - I mean the vehicle name, but we won the program.

These three programs total almost 100,000 additional systems on an annual basis by 2006. This is on top of the 75,000 to 100,000 systems we won last year. We are getting close to reaching our goal of tripling our unit volume to 400,000 units in convertible top by 2005-2006 model year. This increase will double revenue in convertible tops from 45 million to 90 million of sales, again, by 2005-2006 model years.

As we stated on many occasions, convertible top is one of our highest growth opportunity. We will allow you the ability to experience this firsthand. We will be having an investor conference at the Detroit Auto Show on Wednesday, January 8. If you need information on this and would like to attend, discuss this with Andy Lampereur or Ann Erdell (ph) at Actuant and they can fill you in on the details.

Moving to our last subject, we - as guidance for 2003. As we stated in the press release, we are reaffirming our guidance we gave for EPS for fiscal 2003. In fact, we are actually upping the low end of the range by a nickel, from 270 to 275 a share, resulting in our revised range being $2.75 to $3, again excluding the one-time cost for the bond repurchase that Andy talked about earlier.

Some key items that are a part of the guidance -- we are expecting sales of 545 to 575, including the Kopp (ph) acquisition. It represents sales growth excluding Kopp (ph) of between 2% and 5% on an internal basis.

EBITDA in the range of 90 million to 95 million, including the incremental EBITDA from Kopp (ph) acquisition. If you adjust for Kopp (ph) acquisition, EBITDA is slightly down from our previous EBITDA range owing to the weaker anticipated nature of the global economy. This decline in EBITDA is entirely offset by the lower interest expense that we've received from the lower interest expense, which is due to the 23 million - will be in the $23 million range, lower than the previous guidance due to the strong debt reduction we had in the fourth quarter and lower interest rates due to open market bond repurchase.

Tax rate should be in the 35% to 36% range. That yields $2.75 to $3 EPS range, 15% to 25% growth from fiscal 2002.

Our free cash flow from operations will be in the $40 million to $45 million range, or 3.25 to 3.75 per share, again, about 120% of the EPS range. D&A will be around 18 million, including Kopp (ph). Cap ex will be about 10 million to 12 million, also including Kopp (ph).

We think this range accurately takes into account the sloppy nature of the economy. Similar to 2002, we think sales growth will be hard to come by, other than market share gains you can realize, and we have realized some of those. That helps us get sales growth I endorsed above. We continue to aggressively manage cost down and continue to use free cash flow to reduce debt.

In summary, we feel good about the fourth quarter and full year 2000. If you step back and realize we started the year with 9-11 in the first 11 days of the year and related impact that that had on the North America economy, we are feeling good about how Actuant performed.

It is hard to believe it has been 25 months since spin-off of electronics and the creation of Actuant. Time has really been moving along. For those of you who have been with us, since the beginning, Andy and I thought it would be interesting to review objectives at the date of the spin-off and how we are doing two years later.

At the date of the spin-off we had 450 million of debt and debt to EBITDA of about four times. We told investors we wanted to reduce this rapidly to 3 times EBITDA by end of fiscal 2003. Through a combination of the strong cash flow, asset sales, and the equity offering, we are now at 2.3 times trailing EBITDA, much quicker than most investors thought was possible. Big piece of the cash flow was what Andy talked about earlier, $20 million of working capital taken out of the business. That was a commitment we made to the investors.

At the day of the spin-off, we told you we would focus on leading market positions, which at the time were 70% of sales. As of the fourth quarter, these leading markets represent 79% of sales, and I think there's been strong evidence that these markets have been growing in the current economic slowdown.

We acquired two bolt-on acquisitions, Dewald (ph) in the RV business and Kopp (ph) in the electrical business. We've divested three businesses, Mox Med (ph), Norlam (ph), and QMC (ph), that didn't fit the focus strategy.

Moving to softer areas, I think we created and communicated our strategy for Actuant employees. We've upgraded the management team significantly, particularly in the area you guys don't see that much, the middle management hires in all the business units.

One commitment we were not able to make is to hit original sales and EBITDA targets, but this needs to be viewed against the economic environment, which is worse now than it was in the summer of 2000. So, our shareholders have been rewarded for these efforts. Stock is up 120% since the spin-off 25 months ago. Bondholders have big smiles on their faces. We have done well, and the bonds have traded well in the open market. I think you should view this as a successful first two years.

We have a lot of unfinished business ahead for 2003 and beyond. We are positioned for a second year of double-digit earnings growth in 2003, even in a sloppy economy. Strong cash flow continues to be the name of the game for us, and our number one priority.

We have some exciting internal growth efforts in all of the businesses. Clearly convertible top actuation is our largest opportunity, coming fast, will be more visible to you, the investors, as we get into 2003 and 2004 model years. We feel we have bolt-on acquisition strategy that can add to our already leading business positions and can be accretive to the overall profile of Actuant.

We have to do more with world-class performance program, both with our base business and acquisitions we buy, as I talked about Kopp (ph) earlier. Our primary efforts in 2003 will be focused on getting RV margins back and getting Kopp (ph) on line with world-class performance.

We think these initiatives can create a great deal of value for the Actuant shareholders going forward and are focused on achieving them.

That summarizes our prepared comments. Now, over for questions.

Thank you. If you do have a question, press the 1 key on your touch-tone telephone. If your question has been answered, our you wish to remove yourself from the queue, please press the pound key. Once again, if you have a question, press the 1 key now.

Please stand by for the first question.

Our first question is from Dean Dray (ph) of Goldman Sachs. Please go ahead.

Dean Dray (ph): Good morning. Congratulations on the year. First question is, could you walk us through your major businesses and give us a sense of where you might be seeing pricing? My guess is pricing pressure -- and then also, on what you are looking at as raw material costs year over year for '03?

Looking at business by business, Enerpac (ph), I wouldn't say there was any pricing pressure that's been any different than historical pricing pressure we have. In that business, we have been able to offset price increases with a fairly aggressive move by us to manufacture some products in our facility in China, which has been offsetting the pricing -- material price increases you are talking about.

In Gardner Bender (ph), I wouldn't say we are seeing an extremely tough environment right now. We reset the Lowe's program a year ago. The pricing pressure that happened has worked its way through the system on that one. Mark Goldstein (ph) has been successful what he calls with management by fact. It is a cost-down program that eliminated - that reduced our cost structure by about 5% on a number of purchased areas and four-wall (ph) costs. Again, we have been able to mitigate pricing pressures there.

Moving to engineered solutions, seeing pricing pressure in the RV business as we communicated with you last quarter. We have a new competitor there on the trailer side of the business, not the motor home, but on the trailer side of the business. That has yielded to us, granting price concessions to customers and to finding different ways of solving that to protect the margins. That would probably be the place I have seen the most pressure.

Automotive is always an issue. You have normal price reductions that are baked into the actual contracts. We have had a good business model for dealing with those in the past. I don't think raw material change is having a major effect on that.

In terms of cost, material costs and whatnot, we are starting to encounter some spotty price increases on steel as a result of the tariffs and whatnot. It is definitely not across the board. We are counting on cost downs in each of our businesses next year and the numbers we put forth.

There are some cost increases that are coming systemically in the marketplace. For example, insurance is an area where we're seeing fairly heavy increases in the cost of our property and (inaudible) experience and our health and medical insurance. You know, an area like director and officer insurance, for example, obviously you guys could appreciate the fact that those premiums are up significantly.

I think what got all that baked in, Dean (ph) I think we have taken that into account. We've factored those increases in the earnings guidance we have given you.

Dean Dray (ph): Great. Just a follow-up on that new competitor in RV. There was mention of a patent suit that you were going to pursue. Any update on that front?

The lawyers asked me not to comment on it. Litigation is proceeding. There have been point-counterpoint filings that have been made. You know, that is about as far as I want to go. We wouldn't be pursuing it if we didn't think we had the right rights.

Dean Dray (ph): Lastly, with regard to the APW IRS audit, you say that that has started. What year is that for? What years are we talking about? How far back do they have to go?

The only years that are open, Dean (ph), are '99 and 2000. 2000 definitely is under audit or will be under audit. We are having our initial meeting with them in the next month to kick off the process. We are unclear whether '99 is under audit or not. We will know in a month.

Dean Dray (ph): Thank you.

Our next question is from Robert McCarthy (ph) of RW Baird. Please go ahead.

Robert McCarthy (ph): Good morning, gentlemen. Couple details first. When you were running through, Andy, the changes in the quarter on the sales line, convertible was up 13% in the quarter. You didn't give us a currency adjusted figure.

That is excluding currency.

Robert McCarthy (ph): Oh, that is ex?

Yes.

Robert McCarthy (ph): And on the three new convertible top programs that you have won, can you -- I mean, what is roughly the combined volume on the Cruiser and the Magon (ph)?

The Cruisers, we're guessing about 40,000 systems, and the Magon's about 45 to 50.

Robert McCarthy (ph): Okay, so the third one is really a relatively low volume application?

I think, you know, Rob - it's one of the bigger programs. So I think what you are seeing there is we do recognize in this industry, even though I tell you the PT Cruiser is 40, that PT Cruiser will go straight up against the Volkswagen Beetle. Somebody will buy one or the other car, not both. The 100,000 additional systems I talked about is a conservative number. It's trying to factor into the fact that even though a single customer thinks hi program will work that well, we look from an industry point of view and try to factor that into more conservative.

Robert McCarthy (ph): Good. Your forecast for free cash flow from operations, 40 million to 45 million -- exactly what is that calculation?

Let Andy walk you through that.

You start out with just for round purposes, start out with EBITDA in the mid-20s of our range of, say, $92.5 million. From that, we back off cash taxes of about $20 million and cash interest in the range of $21 million, and lastly cap ex of roughly $10 million. We have assumed in that thing really no working capital movement one way or the other. So ...

Robert McCarthy (ph): Is that really all you aspire to?

No, absolutely not.

That's a conservative number. Obviously we have had success in the last few years in getting that. In reality, our receivables are going to grow as sales grow going forward. That will eat up a little bit of working capital that way. We think we can offset that by continuing to squeeze dollars out of inventory and payables as well.

Robert McCarthy (ph): Okay. A quarter ago, Bob - this will be my last one and I will get back in line. A quarter ago, when you introduced outlook for '03, you ran through some preliminary top line estimates for the businesses below the segment level. I wonder if you could update those?

You mean individual businesses.

Robert McCarthy (ph): Yes.

OK. If you do the math and listen to the prior call, you will see $10 million to $15 million degradation in the total forecast for sales -- bringing comp in, but then that the saying North America economy is stalled a bit.

When I look at individual businesses, Enerpac (ph) I think will be marginally up. The reason it is up is not market driven, it's due to market share wins, things like the Eiffel (ph) order we won last year, couple million bucks. Largest order Enerpac ph) ever won. There are other big projects that will sustain the fact the North America economy, particularly in the Work Coleman (ph) product line, will continue to be weak. That thing is really tied to the capital spending cycle. I know me and you talked about that in the past. That will come back later -- a lot later than people have realized.

Moving to Gardner Bender (ph). I think you are going to see GB grow in the mid-single-digits. We have a lot of new product development items there. Got some new opportunities with the big players in the channel - the Home Depots and Lowe's. And offsetting that is the other side, the where traditional electrical distribution is a little weaker.

Robert McCarthy (ph): Okay.

Moving to Power Gear, the RV business. I am expecting this to be up modestly year-over-year. Now, you've got to take that into account, that we did lose the Keystone product last year, that was about 4 million last year and cost another 4 million this year. That's about 5% headwind you are fighting going in. I think we can offset that with just the general inclinement (ph) in RVs are still very strong. Some of the recent data wasn't so bad, particularly what was sold to the dealer network.

Robert McCarthy (ph): Right.

Moving to convertible tops. I think you will see that be an up year. Andy talked about Audi A-4 (ph). Some of that will be more second-half loaded because that is when the Beetle and the other new programs go into production.

When you look at that sales mix, you got to recognize, we tend to have more second-half seasonality than the first half. I caution you not to take that the profile too early in the year. The reason for the second-half seasonality is spring helps convertibles and RVs and construction. So that tends to be our season where we start taking off. You get a little pre-pumping of that in the February, March, April time frame and the summer wanders down, particularly with the European slowdown that happens every year.

I would guide you to maybe push some of that sales growth a little bit in the second half.

Robert McCarthy (ph): Okay. You had talked a quarter ago about convertible being up high single digit percentage. Is that -- are you still comfortable with that?

Yeah, I guess so. I don't remember saying it, but it sounds about right.

Robert McCarthy (ph): Similarly, your expectations for truck was it would be flat to slightly up.

Still believe that. It is market share driven. Recent data in the truck market in Europe has been favorable. I heard today we signed a long-term contract with Scania (ph). That sounds good. We continue to feel pretty positive the truck market will hang in there.

(inaudible) we are more optimistic on today than we were three months ago.

For people following this, and aren't as up on our truck business, it's mostly a Europe business because we do a cab tilting system, and there's not a lot of cab tilts in the torpedo trucks (ph) that the U.S. market enjoys. The demise that's happened in North America doesn't affect us as much.

In the Europe truck market they don't build inventory, they build mostly to production order - you know, to orders from end users. You don't get quite the cyclicality you get in the U.S.

Robert McCarthy (ph): Okay. Thanks, guys.

Next question is from Scott Graham (ph) of Bear Stearns. Please go ahead.

Scott Graham (ph): Good morning. I've got two questions. The first one is back in I guess, May or June, when you had the analyst meeting, you talked about probably 10 to 15 new revenue opportunities that were out there for you that you guyed had identified. Could you give us status on those -- where they stand today a couple of months later, and what you think for '03?

Let me go through them. I don't have my notes, but I ought to be able to remember them. Enerpac (ph) has got oil and gas initiative that is - we've opened a Dubai office in the United Arab Emirates. We think that program is on track. Little concerned about the whole hawkish environment that we are seeing in the Middle East with Iraq. I don't think we are deterred from investing in that area.

China is big growth strategy for Enerpac (ph). That's going very well. I'm on my way there in a week and a half. We had a great year from sourcing and end user sales point of view.

Moving to Gardner Bender (ph) , strong efforts in new product development. Mark showed you a lot of those things at the show. Wire strippers, which we call ErgoStrippers (ph), won an award at Home Center Show. Very strong acceptance there. I think you will see a number of accounts going. We thought that was a professional tool. W think the DI (ph) wire market is going to sop up quite a bit of that.

There are a number of other things involving Staples and Benders and other things coming behind that. That feels like a strong initiative. Another big initiative was Kopp (ph). Obviously I gave guidance on that and it is going well.

Moving to RV, the big piece in RV is introduction of the slide-out into Europe. That show was about a month ago. I wish I could give you hard data. The reality is Hobby (ph) has not released production of the slide-out yet or any of the programs. So we don't have good guidance to give you. Couple million dollars that we are guessing in revenue for next year. I think it will be north of that, but we don't have a lot of data to give you. Convertibles, I think I covered.

Scott Graham (ph): Okay. Now, on the APW $20 million. Previously you guys were not as open to talking about what this potential liability could be, albeit down the road liability. It now sounds like it will be within $20 million. Is that a fair statement and what -- if it is a fair statement, what have kind of been the changes since you last talked about this that have put a circle around 20 as high-end?

I think the big development that has happened on this thing, we have had the opportunity to really dig in and better understand the calculation and the whole planning behind it. Prior to the bankruptcy, APW was responsible for the entire calculation, and ultimately, the defense of any challenge by anyone. With the bankruptcy, we essentially went from the backseat of the bus to the front of the bus. We had to get up to speed very quickly on these calculations. We spent an awful lot of money in the fourth quarter with PricewaterhouseCoopers, with law firms, with other advisors double-checking and reviewing the calculation, and are comfortable that the accruals that we have on the books are proper and are reasonable for this.

I don't want to get into more specifics as far as ranges and stuff like that, as I think you can appreciate it. It is a sensitive topic. The takeaway is we feel comfortable with the numbers on the books.

Scott Graham (ph): Okay. Thanks, guys.

Our next question is from David Gerow (ph) of T. Rowe Price.

David Gerow (ph): Just couple of quick questions for you. Follow-up on Scott's (ph) question on the APW bankruptcy. When we first talked about potential liability, there were three things -- tax, leases and environmental. With APW emerging from bankruptcy, are the leases and the environmental no longer an issue, no longer your potential liability?

They still remain a contingent liability. The key takeaway is they were not triggered. There was no liability triggered or no cash requirements triggered as a result of the bankruptcy. As you recall, all of those obligations were pretty much tied into subsidiaries of APW. What went bankrupt was parent company only, not the subs. So those liabilities were not triggered or there wasn't a layer removed from the defense on those, if you will.

They are still out there. But we are probably breathing better today than three months ago on them. It will be with us. One of the key things on it from a lease standpoint, that we talked about in the past and will review again now. The present value of those leases was in the range of $20 million to $25 million. That number should come down $5 million a year in the next couple of years, as cash payments -- the big years for those are next two or three years, and then it comes off after that. Time is definitely our friend in this case.

I think - we've concluded that those liabilities at this point are very remote. We are contingently responsibility (ph). You are not seeing us accrue money for that or expect payment there.

David Gerow (ph): Great. Just a couple of housekeeping items. Can you talk about Enerpac (ph) U.S. versus Europe? I think you said down 1 or down 5, I can't remember. Break down between U.S. and Europe on pre-currency base for us?

Yeah, let me take that up for you there. I didn't address it specifically, but have the data right here at my fingertips.

Enerpac (ph) in the Americas overall was -- excluding currency, which wouldn't come into play here, was down 3% for the quarter. That compares to a 5% year-over-year reduction in the third quarter. Europe was down about 3% compared to 6% reduction. We did get the first shipment under the big French bridge order that we announced the Milo (ph) viaduct. That went out in August for a couple hundred thousand dollars. And Asia was actually slightly positive - low single-digits positive versus low single digits negative in the third quarter. We saw modest improvement in each of the three markets during the quarter.

David, I will tell you that if you compare that against the backdrop of other capital spending-type businesses, Enerpac (ph) is not (inaudible) capital spending, but it goes into machine cribs and tool cribs and follows production things. You have to conclude, when you look at the numbers, that we gained market share this year. We have a lot of evidence of that.

We announced that we won the Applied Power Technology, the old Bearings Inc. distribution. And I feel very good about Enerpac's (ph) performance in this slowdown. We clearly have put some market share on the competition.

David Gerow (ph): Absolutely. Can you just talk about the Scania (ph) long-term contract? Could you add more color to that? What kind of revenue opportunity is that, or maybe a little more detail?

It's not a big revenue opportunity. We had all of Scania's (ph) business anyway. What they did is they agreed to multiyear program which allows us to sell them more of a system.

As I said, I heard about it for the first time this morning. It's not an event that Arthur (ph) thought was dominant, that needed a press release or would have a major impact. It was just an announcement.

David Gerow (ph): Okay. One last question. The tools and supplies sales are better in Q4 than Q3 and margins lower. I don't know if there is mix involved. Could you talk (inaudible) generating cash flow in the quarter? Maybe running your factories a little slower than normal? Talk about what went on Q3 versus Q4 on the tools and supplies margin side?

No big pieces there, David (ph). It was somewhat of a noise level thing. You come through year-end, you have the normal things where you're doing physicals and doing book to physicals and doing - revaluing inventory, and then you got a slowdown in Europe because the Europeans take off July and August.

So, I don't think you can read much into it. I think we're very happy in the low 20 area this business is running right now. I don't feel like the fourth quarter versus the third was any different. The items that made up the differences were noise level.

David Gerow (ph): Congratulations on a nice quarter.

Our next question is from Jeffrey Brown (ph) of Credit Suisse First Boston. Please go ahead.

Jeffrey Brown (ph): Hi, guys. Quick question -- on the long-term engineered solutions, where do you - and obviously there are margin issues in RV, and also given the decline, (inaudible) getting impacted. But where do you see margins going? What's kind of your goal? Now it looks like 16%. Where do you want that to go to?

I would like to get back to 20. We've operated at 20 before and north of 20. My view is today, given the mix we have, given we bought Dewald (ph), which is lower margin, given that we have more convertibles in the system, I guess my guidance is to get to 20 as a long-term goal.

I think our view is we'll clearly move up from the 16.1 that we reported for the full year this year, probably halfway to the 20. The key to that is going to be, in my opinion, is mostly RV-related to get that business back functioning at a level we want. And my comments told you (ph), I think that is coming. I am confident of that.

Jeffrey Brown (ph): Are you looking to divest either the Nielson (ph) or Milwaukee Cylinder (ph) or ...

We would sell anything at the right price. The problem is today you have a situation where, you know, it is just a very bad time to sell business. It is great to be a buyer and terrible to be a seller.

On top of that, we have good strategy with both businesses that we think will create year-over-year improvement. So, you know, I don't think -- I guess I was inclined to do it at the day of the spin-off when I have a lot more debt. Today I am more of a capitalist looking at what I can do with the businesses and looking more on (inaudible) are they accretive or dilutive. I think they will be accretive.

Jeffrey Brown (ph): Also, on the outlook, if you take essentially 545 to 575 (inaudible) call it 90 to 95 of EBITDA, that comes to about 16.5% EBITDA margin. Obviously that is a lot lower -- is that just essentially the impact of Kopp (ph)?

Yes. Each of the base businesses is up year-over-year. It is Kopp (ph) that's dragging that down.

Jeffrey Brown (ph): I think LCM-Kopp (ph) at the time was around 85 million in sales in size, and (inaudible). Is that kind of what you expect to get out of the business in fiscal '03 as well? Is there pressure on the business?

I think -- I mean, I think that those are not bad numbers. It will be a year where you might see the sales line drop because we are getting out of SKUs. Kopp (ph) has a bunch of SKUs that are not profitable. When we bring our CMM (ph) or EVA (ph) model and do our 80/20 analysis, there are just some products we wouldn't be in. So, I'd probably caution you down to more like 80 on revenue. It could be lower than that. I think EBITDA will hang around 5 million. I think it will be a little more back-end loaded in that, you know, that's when we will get benefit of world-class performance and sourcing that we started.

Jeffrey Brown (ph): In '03, any other kind of cash restructuring or cash inflows from asset sales out of Kopp (ph) that you kind of see, kind of a second cash flow potentially?

We always create a list of things we can do, whether it is real estate sales or product line dispositions, things like that. So, nothing that I think you need to model or expect, but don't be surprised if we announce we did a sale lease-back of a Kopp (ph) facility or something like that. We don't like the real estate business; in Kopp (ph) we inherited a lot of real estate. We will probably get cash flow from that.

Jeffrey Brown (ph): Kind of - it looks like organically, essentially, GDP growth at this point, and the incremental is largely Kopp (ph)?

We said 1% to 5% -- sorry, 2% to 5% growth is our range. I don't think GDP will be 2%. Now, everybody can debate their number there. My guess is we're 2 times GDP; same number I have been giving people for a while. You got to debate whether the GDP numbers are right and what raw materials, how they affect GDP, but I - we started this call a year ago talking about how we had a big second half recovery coming in 2002 and it didn't come. And I think we are well buttoned down. I think 2% to 5% internal growth, no acquisitions, I would sign up for that in a heartbeat today.

Jeffrey Brown (ph): Right. Also, I guess my final question is, things stalled (ph) going into in July and August. I guess the things aren't worse than where they were, you know, at the end of the calendar '01 and coming into '02, essentially saying (ph) things picked up a bit of a head of steam and now flattening out. There is market -- do you believe trough in the (inaudible) and now came up and now we are bumping along that level? No further deterioration?

I think that's our view. I think our view is we're bumping along, and it's flattened out at today's level, which is marginally better than the early quarters last year. You know, I think it will get help on the comparison to the second quarter. That was our weakest quarter. You know, it's an economy that you're not going to get sales growth just from the industry itself. You will have to go out and get it from competition. I think that is where this thing is heading.

Jeffrey Brown (ph): One last housekeeping note. What draw is on AR (ph) now? 25 million or 26 million - on the AR facility?

About 25.

Thank you very much.

Our next question is from Steven Ralph (ph) of ING. Please go ahead.

Steven Ralph (ph): Quick question. Not sure I heard you correctly on the European truck business. I thought you said you were seeing market share gains and you had seen pick-up in the business ex market share gains. Can you clarify what that is as a percent of the business and what the margins are on that?

European truck is about $35 million to $40 million of total sales source -- about 8% or so of the 7% or 8% of total pie. I think we saw some of both. We did see some increased orders churning in the summer from a couple of our larger customers. Market share -- we picked up market share in the sense you got complete systems sales as to components during the year.

The market right now overall is probably still a little negative. We have obviously picked those two factor that we mentioned put us in positive territory for the year.

We have a lot of the Western European truck guys. We have all the Volvo business, Scania (ph) and Dawes (ph). We are weaker with Mon (ph) and Mercedes. Those guys seem to be doing worse. I think what's happening is we are getting a little more because customers are getting more market share from the two big Germans. Volvo is one I track closely. Volvo is talking about a down year next year, single digits. That is what they are telling us at supplier meetings and stuff.

We are doing better than that, because we're selling them a system supply. I think the truck market, it wouldn't be crazy to think it could be down 5% across Europe. What we're saying is we're going to be flat to maybe up a little due to market share issues.

Steven Ralph (ph): Great. Thank you very much.

Next question is from Ted Roosevelt (ph) of Lehman Brothers.

Chuck Peterson (ph): Chuck Peterson (ph) in for Ted (ph). Had a couple of questions on working capital. First, in regard to accounts receivable, looks like your days were higher than we expected in the fourth quarter. I was hoping you could comment on what you are seeing in terms of collections?

I have not looked at days in particular business by business. It surprises me, to be honest with you. Just the quality, when I look at our receivable agings this year versus any other period, our receivable agings accident are the best they have been in the last two years by a long shot. So I think it could be some -- the way the sales came through in the quarter, because there was not an issue there at all.

We had a pretty good push in August. We had a decent August -- because it is our year-end we try to clean up. Also, the Europeans tend to come back on line in late August. You start to invoice a lot of stuff that is hung up on receivable balances.

We've been really tracking this. We had a real corporate imperative to work the working capital down. I would tell you quality is better. Even though the aging might have moved up in how you look at it, I tell you, you will see it probably go the other way in the next month in whatever metric you are looking at. It is improved on quality side.

Chuck Peterson (ph): Okay. Maybe pick up a couple of days more towards 42 or 43 versus 45 for fiscal 2002?

One thing you may not be taking into account as well, that receivable balance on the balance sheet is net of $25 million that was taken off. Going straight off the balance sheet is ...

But that wasn't a big switch (ph) -- couple million? In terms of (inaudible), but revenue is up. That would impact it.

Chuck Peterson (ph): Metric has been consistent, though; lines up.

I can tell you our receivables without hesitation are cleaner than they have been at any point in the last few years.

Chuck Peterson (ph): Okay. Then, just looking at payables, definitely looks like things were stretched out in the fourth quarter. Can you comment what you are hearing from suppliers. Do you think maybe they tried (ph) tightening you guys up a bit there?

No, as a matter of fact, we have been working the opposite. Look at working capital total, we had three different strategies. Our sales team and our receivables teams have been working one end to collect everything ASAP and shorten terms. On the other end of the spectrum our payables team and our purchasing team have been going after cost reductions and stretching out (ph) terms. You get into cost down approach, and if we can't get costs from 3% or 5% straight reduction in the price, we will say okay, we want an extra 30 days or 60 days. So, that was part of what you saw in the quarter. I mean, everything came together at the end.

Chuck Peterson (ph): So -- I'm sorry.

That's all I have.

Chuck Peterson (ph): So 57 days is probably reasonable expectation going forward? High 50s?

45 to 50.

Chuck Peterson (ph): It will tighten up, then?

As Andy says, it is difficult to look at because you have got to take into account Asian vendors, for example. Entirely different model as we put things on the water and when title changes in Shanghai. It is not easy to answer and say it will move one way or the other. When we negotiate with new vendors, we don't care. We are CMM-driven (ph) company, meaning it's a return on assets. If people want to give us more dating because it helps them and they don't care about working capital, we view that exactly the same as a cost reduction. So, it's not something you can just guess. I am telling you most of our vendors are 45 to 60 days time frame. Most are more toward 45. Probably driving that up is a few of these longer lead time items and coming in from Asia.

Chuck Peterson (ph): Okay.

Couple things did impact us. Currency helped us out in that regard in terms of payable balance itself rising. Another factor that is not obvious on the outside is probably $1 million in accrued legal in accounting that came through in the fourth quarter that you are not seeing out there that's hung up in payables related to the APW matter and investigating it and making sure we had it nailed down. All that was hung up in payables at the end of the year.

Chuck Peterson (ph): Thank you.

Our final question today is a follow-up from Robert McCarthy (ph). Please go ahead.

Robert McCarthy (ph): I might have a couple. Andy, what are you assuming for foreign currency translation in your sales estimate?

It is -- to be honest, we've got a bit of a mish-mash out there. Most units are in there in the 96 range. We have a couple that came in like Kopp (ph) is in there probably at a more current euro-to-dollar range of 98 - but generally is between 96 and 98 on the euro. That's the primary currency that impacts our numbers.

Robert McCarthy (ph): Help me out. Can you translate that into what kind of effect it is having on the 545 to 575 figure?

Why don't you take that up with Andy offline? He can mash it through there.

I don't have that off the top of my tongue, but I can dig it up.

Robert McCarthy (ph): Why is Hobby (ph) moving so slowly to introduce slide-outs?

I don't think it is moving slowly to move slide-outs. It takes these guys a while to decide what their dealers ordered and how they're going to push that into a production system. We saw the exact same thing at Louisville last year. December 2, we heard from the dealers, what a great show. We need to buy those units. We have naked lots. We've got to put people out there. We didn't see any orders in late December or early January. All of a sudden, the flood gates opened on January 15th.

I got a feeling the same thing happens in Europe with the big show. It is our first experience, so it is hard to get traction on that. That is our guess, that this will be a pretty big drive. And the show went very well. Everybody came back enthusiastic and looking at slide-outs. Hobby (ph) was the only one there. The booth was crowded. I think it will go good. We are hung up in a time where they try to turn it into production schedule.

Robert McCarthy (ph): Last one. When you were talking about disappointment with RV margins, you talked about -- in your prepared remarks, talked about getting them up, but the progress would be slow and we needed to be patient. Then, when you were answering about engineered margins for the entire segment, you talked about picking up couple hundred basis points this year. I am a little confused on -- is what you originally said about RV primarily a function of your comments about having to provide price concessions to people, or are there some specific issues there that are restraining you, or is it really not that big an issue?

I don't think it's that big of an issue. I think - like I we say, we finished this year at about 16.1. And I think a good target for you is 18. Some of that 16.1 was a lot of overtime. We had to ramp-up when this volume came on that I just talked about. We ran a lot of overtime and did a lot of expediting and freight. It took us a while to get ready for the additional volume. I don't think you will see the one-time costs going through in 2003.

So, that coupled with world-class performance and getting all the benefits of the Dewald (ph) acquisition and consolidation on Beaver Dam (ph) and getting the efficiency up and making the units is going to drive us to 18.

Robert McCarthy (ph): Okay. Thanks.

Very good. We appreciate you on the call today. We feel like we had a great year. We feel like we are in position to have another great year at 2003, even in a sloppy economy. So, we appreciate your support and look forward to talking to you in the future. Andy and myself are here all week if you have follow-up questions. Thank you very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect at this time. Have a good day.